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Aging Developed Nations

The demographics of developed nations are becoming increasingly dire. I have looked briefly at old age dependency ratios in the past, but I think that as we assess sovereign risk and growth rates it is an opportune time to revisit these stats.  It is well known that Japan has a very old population with one retiree being supported by just two working citizens by 2030, but BofA’s research provided some surprising newcomers to the old-age dilemma.

Korea, Taiwan, Singapore and HK are facing ritiree challenges

You might ask, “So why should we care?”  There are a few very important factors to consider.  Population growth creates economic growth.  A growing population generally produces a growing economy.  An aging population could mean a shrinking economy, but more importantly it means that pension and entitlement systems will be stressed.  When you have 2 people supporting 1 retiree, it requires significant taxation to fund which generally leads to lower economic competitiveness.  In addition, an older population will invest in a different asset allocation than a young population.  Older people will invest in more bonds and less stocks:

Older populations invest more in fixed income and less in equities

So what does this mean from an investment standpoint?  It seems to me that India, Malaysia, and the Philippines look like the most attractive places to invest for long-term growth.  Great demographics, a poor starting point, and a very educated population:

Very educated workforce in developing countries

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  1. Wundermonk says

    An alternative for “developed” economies that face unfavorable demographic distribution is immigration. I would not bet huge on India, Malaysia, Indonesia, etc. because they really are not governed by any rule of law. It is pretty much might is right and jungle law. The ideal for “developed” economies would be to import smart immigrants such as doctors, engineers, etc. even though they may have a different skin color and practice a different faith. But because humans really haven’t evolved from the days of the hunter-gatherer, we instinctively hate someone who does not look like us and speak like us. So, in essence, we are screwed one way or the other…

  2. SurlyTrader says

    I tend to agree with you. I have thought for years that a way out of America’s debt mess was to go full force at becoming the world’s “innovator” by selectively allowing immigration from those who would invent, research, develop, and build businesses. Unfortunately, 9/11 happened and getting into the country became harder than ever. Now we have high unemployment which is surely going to put more political pressure on immigration control, which is exactly the opposite of what would help fix out employment problems… So I guess you are right with your last sentence…

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